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Government Should Start Auctioning Off Bus Routes

Posted: 05/29/2012 3:34 pm

The McGuinty government's decision to eliminate funding for Ontario Northlands Transportation Commission (ONTC) has been met by strident opposition from many Northern Ontario politicians, including former North Bay Mayor and current PC MPP Victor Fedeli. Opponents claim that the ONTC provides crucial service for the North, and that subsidies ought to be maintained given its increasing losses. Such opposition is short sighted. While intercity bus service is crucial to northern Ontario, a government operated monopoly is not. Greyhound may not want to pick up the slack at the moment, but with the right set of incentives, the Ontario government could foster the conditions for someone to do it without taxpayers being on the hook for the whole region.

Rick Bartolucci, Minister of Northern Development and Mines, has pointed out that the ONTC is not on a sustainable financial path despite $439 million in subsidies since 2003-2004 (including train service). Moreover, revenues have decreased from $140 million to just over $100 million annually since 2005. According to Bartolucci, "The fact is, while the business is good, the business model is not." The Liberal government's solution is to divest of ONTC, and tender out routes. While this would be a start, there is an opportunity to take more dramatic steps to revitalize the industry.

Inter-city bus ridership has declined over the last few decades in Canada. This is largely because driving has become cheaper. But it isn't declining everywhere. In fact, inter-city bus ridership in the United States increased by 22 per cent between 2007 and 2010 alone. Low cost carriers such as Megabus and Boltbus have introduced hundreds of low cost routes in the northeast. Their buses are more comfortable than regular Greyhound buses, and feature (admittedly spotty) Wi-Fi and power outlets. It is common to find one way fares for the four and a half hour trip between New York and D.C. for $10 or less (the author in one instance paid $3). But the expansion isn't simply taking place in the heavily populated northeast. Discount bus carriers offer a litany of routes in the Midwest and has also spread to southern Ontario, where Megabus has introduced dozens of routes.

With its lower population density and higher percentage of travel by single occupancy vehicles, Northern Ontario isn't the most lucrative inter-city bus market. Yet, one company based out of Thunder Bay is already signalling interest in expanding northern routes. The reality is that there is money to be made, so someone will take advantage of the opportunity. But there is a legitimate argument about companies not servicing some currently money-losing routes. There could be a case for subsidizing these routes, but that doesn't mean subsidizing the ONTC.

Competition has made inter-city bus service cheaper and more convenient where allowed. So any form of subsidy introduced for northern bus service needs to be crafted in a way that does not unduly privilege one company over another. The solution is a least cost subsidy. For routes that are deemed socially necessary, but which companies decline to service, the Ontario government could auction off subsidies to the lowest bidder. This way if a company believes that it can make money with a lower subsidy than is currently applied to the route, they can underbid their competition and save taxpayers money. Some routes that we assume to require subsidization could eventually be profitable without subsidies as the market expands. That would be a win for riders, and a win for taxpayers.

Rather than being the provider of northern bus services, the government should move toward being a purchaser. It would allow the province to ensure that all areas where bus service is justifiable are serviced, while harnessing competition to maintain low rates and high quality service. The ONTC isn't financially sustainable, and Greyhound isn't interested in servicing parts of the north.

It's time for a new approach. It's time for the Ontario government to help develop the conditions for a healthy, competitive environment in inter-city transportation that serves the communities of northern Ontario.

 

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